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NBH Maintains 1W Depo Rate Steady As HUF Driven By 'External' Factors

HUNGARY
BulletEM BulletEmerging Markets
  • Yesterday, the NBH decided to leave its effective policy rate steady at 6.45% (as expected) despite the elevated inflationary pressures and the HUF ‘weakness’.
  • Even though policymakers have been calling inflation a ‘public enemy’ and the HUF weakness is supporting inflation expectations, the forint is currently driven by factors outside of the monetary policy realm (i.e. geopolitical uncertainty).
  • Hence, the NBH has tried to limit the interventions via the 1W depo rate facility and stick to ‘monthly decision’ along with the ‘core’ policy rate.
  • Hiking too aggressively may not have any ST impact on HUF and would accelerate the economic slowdown.
  • The chart below shows that the sharp tightening in in financial conditions (i.e. surge in ST rates) has been pricing in a significant slowdown in the economic activity in H2
  • Next meeting will be on May 31; the NBH is likely to reduce the pace of the tightening cycle on the ‘non-effective’ policy rate and raise it by 50bps to 5.9%.

Source: Bloomberg/MNI

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  • Yesterday, the NBH decided to leave its effective policy rate steady at 6.45% (as expected) despite the elevated inflationary pressures and the HUF ‘weakness’.
  • Even though policymakers have been calling inflation a ‘public enemy’ and the HUF weakness is supporting inflation expectations, the forint is currently driven by factors outside of the monetary policy realm (i.e. geopolitical uncertainty).
  • Hence, the NBH has tried to limit the interventions via the 1W depo rate facility and stick to ‘monthly decision’ along with the ‘core’ policy rate.
  • Hiking too aggressively may not have any ST impact on HUF and would accelerate the economic slowdown.
  • The chart below shows that the sharp tightening in in financial conditions (i.e. surge in ST rates) has been pricing in a significant slowdown in the economic activity in H2
  • Next meeting will be on May 31; the NBH is likely to reduce the pace of the tightening cycle on the ‘non-effective’ policy rate and raise it by 50bps to 5.9%.

Source: Bloomberg/MNI